In central Niger, along a major Saharan caravan route, the Tree of Ténéré stood for hundreds of years. It was an acacia tree, long considered to be the most isolated tree on earth. The Tree of Ténéré was so remote that it was one of only two trees to be marked on 1:4,000,000 scale maps (the other, for you trivia nerds, is the Arbre Perdu, some several hundred miles north).1
In 1973 a Libyan truck driver, reportedly drunk, knocked down the Tree of Ténéré. The Nigerien government enshrined the beloved tree in the capital of Niamey, building a metal structure at the site where the tree once stood.
What the Nigerien government did not do—or as far as anyone could tell, even attempt—was to plant a new tree where the Tree of Ténéré once stood.
The reason this was the case was that the environment was so inhospitable, so lacking in water, that planting a new tree was utterly pointless. It would not survive. Which leads to the question of how the Tree of Ténéré got there in the first place.
The answer is pretty simple: When the Tree of Ténéré first sprouted, the environment had been much more hospitable. As the desert encroached upon its habitat, the Tree of Ténéré simply adjusted. A well dug nearby in the late 1930s suggested that the tree’s roots extended more than 100 feet into the ground in search of water. The Tree of Ténéré survived in a place where no successor—even from the identical species—possibly could.
In all things, environment, as well as entity-environment fit, matters. And it is incumbent upon governmental competence to continually monitor and adjust to the environment to ensure maximum economic activity.
Take the sugar industry in Haiti. That is…if you can find it.
In the 18th century, Haiti produced nearly half of the world’s supply of sugar. Let’s not get too doe-eyed about 18th century Haiti, as its economy was dominated by slave plantations. But following Haitian independence in 1804, Haiti’s sugar production dwindled. By 2023 Haiti exported around $20,000 worth of sugar and sugar byproducts.2 Functionally non-existent.
There are plenty of theories about why Haiti’s sugar industry collapsed. One—perhaps the most emotionally satisfying one—held that post-independence Haiti rejected the sugar industry because of its horrible past. But an economic study by Utah State University’s Craig Palsson pointed out that tens of thousands of Haitians emigrated to other Caribbean islands to work in their sugar industries. Palsson’s study postulated that the property rights regime in Haiti made transaction costs for land so expensive and unwieldy that the country prevented its own sugar industry from modernizing.3
The barriers and expenses associated with land transactions certainly came from a good place when they were enacted. Under Haitian law, every family member has a veto right to prevent land from being sold on inheritance. Because Haiti gained independence so early, its laws were already in place during the Industrial Revolution, rendering the task of reform next to impossible.
Today Haiti is beset by economic and governance issues, with large segments of its territory under control of criminal gangs rather than the government. Haiti has the lowest per capita income of any country in the Western Hemisphere. One doesn’t need to imply a causal relationship to wonder whether the benefit of a modernized, highly-developed sugar industry might have helped create conditions for a better economic outcome for the entire country.
A little more than a year ago, former European Central Bank President Mario Draghi released a Competitiveness Report to the leadership of the European Union.4 The impetus for this report was pretty clear. Europe—once literally the world’s engine for industrial production—finds its position in the global economy inexorably declining, with weak productivity levels, poor demographics, and high energy costs conspiring to leave it vulnerable to more nimble, hungry global competitors.
Here we sit a year later and practically nothing has changed. The combined population of the European Union is 450 million people,5 much larger than that of the United States, and yet the U.S. companies comprise close to half of the world’s stock market cap by value. Nine of the top 10 largest companies by market capitalization are American (the tenth is Saudi Aramco). And Germany’s GDP per capita trails all U.S. states save Mississippi.6, 7
In the Art of War, Sun-Tzu said, "The opportunity of defeating the enemy is provided by the enemy himself." Europe, even possessing clear eyes about the extent of the problem, seems frozen in its capacity to do anything about it. The technological gap that the U.S. and China have opened over Europe now yawns, with Europe barely in the conversation for countries driving the revolution in AI. In fact, Europe is so far behind that one might conclude that its AI strategy to date is indistinguishable from simply hoping that those countries which have taken the lead are making an expensive mistake.
I once met a German with a business idea he wanted to pursue whose first order of operations was to try to re-locate himself out of Europe to, most preferably, the United States. His calculus for this decision was pretty simple: If his business got off the ground sufficiently enough in Germany to require him to hire employees, his potential cost for failure would include several years’ worth of benefits. Europe’s regulatory framework made the cost of failure for him too high.
It’s a bizarre contradiction that capital accrues to a place where the cost of failure is pretty much only shouldered by capital. The American attitude toward a failing business, or an entrepreneurial flameout can be best described as "you’ll get ‘em next time." This libertine attitude toward risk can mean that Americans are more willing to take it. Alexander Hamilton landed on these shores singing "I’m not giving away my shot," and that’s pretty much how it has been ever since.
Europe’s risk-averse culture and protectionist stance to me is the very thing preventing it from producing material wealth. All its advantages, infrastructure, and highly-educated workforce are not sufficient counterbalances to its ambition-crushing aversion to taking risks. Without that ambition, everything else is just underutilized assets. I foresee a decade from now when the next generation’s Draghi produces another competition report, the same recommendations will be ignored and Europe’s industrial heart will be hollowed to the core.
Our portfolios have minimal investment in European companies, even less so for European companies primarily trading on European economic vitality. In my opinion, there is so little reason to believe that the levels of misfortune necessary to cause a true reset are going to shock the EU into action. Napoleon Bonaparte, a European risk-taker extraordinaire, once said "I have fought sixty battles, and I have learned nothing which I did not know at the beginning. Look at Caesar; he fought the first like the last."
Capital will continue to flow to where it can have the capacity to win and win big. For fear of losing, it seems that Europe has ceased to be a market driven by initiative. And like the land where the Tree of Ténéré once stood, land that was once fertile now lies fallow as a result.